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29 October 2019 Issue Brief

Disclosure Effectiveness Principles

Without a certain level of appropriate guidance, issuers of securities may fail to clearly and consistently disclose the relevant information that allows investors to make informed investment decisions. Poor-quality or missing information can mislead investors about the financial condition and performance of a company, so in many instances, regulatory oversight of disclosures only improves investor protections.

The benefits of disclosure should be weighed against practical issues, such as the cost of gathering and reporting or any competitive disadvantages a firm suffers in the process. But providers of financial information − regardless of size, industry, locale, or maturity − will best serve investors by adhering to the highest standards of transparency, accuracy, relevance, and timeliness in financial reporting.

The Securities and Exchange Commission (SEC) is a federal government agency. Created by Congress in 1934 as the first federal regulator of U.S. securities markets, the mission of the SEC is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. The SEC strives to promote a market environment that is worthy of the public's trust. It also monitors corporate merger and acquisition activity in the U.S. 

In December 2013, the SEC issued a staff report to Congress on its disclosure rules for U.S. public companies. The report, mandated by the Jumpstart Our Business Startups (JOBS) Act, offered an overview of Regulation S-K, which provides requirements for public company disclosure. The report also delivered the staff's preliminary conclusions and recommendations about disclosure reform.

The SEC’s Division of Corporation Finance is reviewing the disclosure requirements in Regulation S-K and Regulation S-X, which provides requirements for financial statements, and is considering ways to improve the disclosure regime for the benefit of both companies and investors. The goal is to comprehensively review the requirements and make recommendations on how to update them to facilitate timely, material disclosure by companies and shareholders' access to that information.

In July 2016, the SEC voted to propose amendments to eliminate redundant, overlapping, outdated, or superseded provisions, in light of subsequent changes to SEC disclosure requirements, U.S. Generally Accepted Accounting Principles (U.S. GAAP), International Financial Reporting Standards (IFRS), and technology.

The SEC was at that time also soliciting comment on certain disclosure requirements that overlap with U.S. GAAP to determine whether to retain, modify, eliminate or refer them to the Financial Accounting Standards Board (FASB) for potential incorporation into U.S. GAAP. 

The proposed amendments were designed to address outdated and redundant disclosure requirements while continuing to require companies to provide investors with what they need to make informed decisions.  “We are keenly interested in investors’ views on all aspects of the proposal and look forward to receiving their input as we continue to consider changes and enhancements to our disclosure requirements,” said then-SEC Chair Mary Jo White.   

The proposal was part of the SEC’s Disclosure Effectiveness review, which is a broad-based staff review of the requirements, and the presentation and delivery of disclosures that companies make to investors. The proposal was to be primarily applicable to public companies (including foreign private issuers), but also would involve requirements applicable to other entities the SEC regulates, including Regulation A issuers (Regulation A is an exemption from registration requirements that apply to public offering of securities that do not exceed $5 million in any one-year period), investment advisers, investment companies, broker-dealers, and nationally recognized statistical rating organizations (credit rating agencies).

The proposal covered:

  • Whether to delete requirements that duplicate U.S. GAAP, IFRS or other SEC disclosure requirements;
  • Whether to delete requirements that overlap with GAAP, IFRS or other SEC disclosure requirements to the extent they are no longer be useful to investors, or instead to integrate the incremental information or modify or refer them to the FASB for potential incorporation into GAAP;
  • Whether to amend outdated requirements that have become obsolete as a result of the passage of time or changes in the regulatory, business or technological environment, including whether to propose to require additional disclosure of information as appropriate; and
  • Whether to amend superseded requirements that are inconsistent with recent legislation, more recently updated SEC disclosure requirements or more recently updated GAAP to reflect these more recent updates.

The proposal was the result of the SEC’s work on a disclosure effectiveness review –a comprehensive evaluation of the SEC’s disclosure requirements with the objective of improving the disclosure regime for both investors and companies.

The work is focused on considering the type of information the rules require issuers to disclose, how the information is presented, where and how the information is disclosed, and how technology can be leveraged for improving disclosure to investors’ access to the information. 

The SEC had issued several releases in connection with the disclosure effectiveness review.  The Commission is seeking public comment on modernizing certain business and financial disclosure requirements in Regulation S-K and on proposed amendments to its disclosure requirements for registrants involved in mining activities. The Commission also requested comment on financial disclosure requirements in Regulation S-X for certain entities other than the issuer. 


The Commission’s framework for company disclosure derives from the Securities Act of 1933 and the Securities Exchange Act of 1934.  The Commission first introduced its current system of integrated disclosure in 1977, in which a centralized set of rules apply to both registered public offerings and periodic reports.   Regulation S-K is the central repository for the Commission’s rules covering the business and financial information outside the financial statements that companies must provide in their filings. 

CFA Institute Viewpoint

CFA Institute supports the Disclosure Effectiveness Initiative and believes it is essential to maintain and improve the transparency of information provided under the Securities Act of 1933 and the Securities and Exchange Act of 1934 and to see that they are updated as markets and technology evolve. In fact, many needed updates are long overdue.   

As the SEC embarks on this initiative, CFA Institute encourages a more proactive outreach to investor groups through roundtables or other convening events so as to obtain a wider range of investor and user views as a balance to the likely volume of perspectives from industry and commercial interests. In that regard, we caution against any misperceptions that: a) investors are generally overwhelmed by the volume and complexity of information and that financial statements and SEC filings are filled with immaterial information; or b) that the solution to disclosure effectiveness should focus entirely on eliminating rather than refining and even adding disclosures in certain areas observed to be deficient during the financial crisis. 

CFA Institute has a long history of promoting more fair and transparent disclosure from issuers and has been a tireless advocate for investor protection. In 2013, CFA Institute included in our report, Financial Reporting Disclosures: Investor Perspectives on Transparency, Trust, and Volume, the results of an investor survey that asked our members to weigh-in on issues of volume (Chapters 3, 4 and 5), complexity (Chapter 6) and materiality (Chapter 7) as it relates to financial reporting disclosures. As noted in the publication, CFA Institute undertook the survey and published the report to bolster limited investor input. This study showed investors did not see volume, complexity or materiality as the key disclosure effectiveness issues. 

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